Transcript Chapter 8

E-commerce and Information
Technology in Hospitality and Tourism
Chapter 8
A Special Case Study: The Past, Present,
And Future Of Travel Agents
Copyright 2004 by Zongqing Zhou, PhD
Niagara University
Learning Objectives
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After you complete your study of this chapter, you should
be able to:
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Gain a historical perspective on the role of travel agents.
Describe the attitude of travel agents toward the use of
technology.
Understand why travel agencies’ business models no longer fit
the Internet age.
Explain why travelers leave travel agents.
Understand new strategies for the future of travel agents.
Explain why marketing orientation, combined with individualized
service, is the viable business model for the future of travel
agencies.
8.1 Introduction
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Internet and Travelers
more than 59 million Internet users in the
United States went online last year to gather
information or to check prices and schedules,
growing 395% over the past three years.
 Over one third of all e-commerce transactions
are now attributable to travel, and online
travel advertising ranked fourth in 2002
 By year’s-end 2002, it will reach $8.9 billion in
online travel spending.
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8.1 Introduction (cont.)
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Why are travel agents in trouble?
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They are being hit from all directions.
Both the availability of online booking and the commissions cut and
cap by travel suppliers and carriers third-party
Online travel stores, such as Expedia.com, Travelocity.com,
Orbitz.com, Priceline.com, and Travelweb.com are competing with
them and takingcustomers away.
The global distribution systems, GDSs, the former allies of the travel
agents, are reaching out to consumers themselves.
There is increasing consumer interest in e-commerce that, in turn, is
fueled by consumers’ increasing online accessibility.
Increasing consumers trust in various online payment methods as
well as in credit card transactions over the Internet.
8.1 Introduction (cont.)
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Why studying travel agents?
Shed light on the impact of the Internet on the
hospitality and tourism industry as well as the
underlying reasons for the impact.
 Identifying these problems and issues can
help travel agents as well as other sectors of
the industry develop strategies to cope with
new changes in the market.
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8.2 Historical Perspective
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Historically, travel agents played an essential role in
hospitality and tourism.
They were a leading intermediary between the
traveling public and travel carriers and suppliers.
Travel agents were supposed to be trained
professionals with extensive knowledge of the
hospitality and tourism industry.
8.2 Historical Perspective (cont.)
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They were there not only to sell tickets but also,
supposedly, to provide advice and recommendations
on every aspect of a trip, from planning to onsite
visitation.
They act as the retailer and promoter on behalf of
the service providers, that is, the travel carriers and
suppliers.
Agents sell these products and services directly to the
traveling public and in return receive a commission
from the travel carriers and suppliers.
Travel Agents and the Value of
Information Access
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Travel products are unique in that they are not
tangible nature, travel is about the experience.
Agents provide the key to an unforgettable travel
encounter in providing critical travel information that
leads to a satisfactory experience.
In the past, travel agents were held in high esteem
because they were virtually the most important, if not
the only, medium through which consumers could
gain travel information and make advanced travel
purchases.
The key to success was their access to travel
information not available directly to the public.
Travel Agents and the Airline
Industry
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Travel agents relations with airline carriers create
many impacts within the industry.
Travel agents relied heavily on the commissions they
received from airline ticket sales to stay in business.
At the same time, airlines conducted a majority of
their ticket sales through agents.
Many issues faced by agents have come about
because airline commissions have such a great effect
on travel agents.
Why airlines need travel agents?
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The travel agents’ great popularity and
visibility in the eye of the public.
How did this relationship develop
over the years?
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Travel agents have not always been present since the
airlines began shuttling travelers around the world.
Historically, airlines were dependent on any person who
had contact with the traveling public to sell their tickets.
In 1945, the Air Traffic Conference (ATC) was
established by the airline industry to alleviate this
unorganized method of distribution.
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The conference system was responsible for establishing
agreements and standards that would regulate the activity of
domestic airlines and the dispersion of their tickets.
It also established the modern-day travel agent.
Travel Agency and Airline
Regulations
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The ATC Passenger Agency Program was
developed to determine the conditions for the
authorization of agents. This system protected
airlines from dealing with unqualified distributors.
ATC accreditation was based on several
standards:
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business practices
financial requirements
personnel training
and agency location
Travel Agency and Airline
Regulations (cont.)
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A major provision of the Passenger Agency Program was
the 20 percent rule. This rule required that an agent
must do less than 20 percent of its annual air
transportation business with itself or other businesses
under its control. Which prevents large corporations
from forming agencies to regulate distribution of their
own business travel.
Any price commanded by the CAB (Civil Aeronautics
Board) was dictated to travel agents for sales. All
airlines were required to charge the same fare for flight
to and from the same city.
Travel Agency and Airline
Regulations (cont.)
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Not long after the establishment of the ATC, the
International Air Transportation Association
(IATA) was formed for the regulation of
international air travel.
The IATA has the same basic functions of the
ATC: security, safety standards, and
appointment of travel agencies to represent
member airlines.
Travel Agency and Airline
Regulations (cont.)
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The Civil Aeronautics Board (CAB) regulated
air travel from 1938 to 1978. Among its duties:
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granting airline routes
controlling fares
protecting the interest of the public
airline fares: Airlines themselves had little control in
pricing their own tickets. Any price commanded by the
CAB was dictated to travel agents for sales. All
airlines were required to charge the same fare for
flights to and from the same city.
Airline Deregulations
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In the winter of 1973, worldwide oil supply shortage
almost broke the airlines
By 1977, the CAB had implemented deregulation
allowing discount fares and advocated total airline
deregulation.
From 1976 to 1978, a boom in the airline industry
resulted from these changes spurred the growth and
success for travel agencies.
In the aftermath of the deregulation, airlines had the
added freedom of allowing non-ATC agencies to sell
tickets
Airline Deregulation Act and Its Impact
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The passage of the Airline Deregulation Act, signed by
President Carter in 1978, removed all remaining
obstacles to route entry by established carriers, opened
up entry to new carriers, and phased out all fare
regulations.
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Major components of this law, the gradual
dismantling of the CAB by 1985, thus eliminating
any prospect of further airline regulation. The
second is the scope of antitrust legislation that was
entered into upon the freedom to competition and
protection from monopolies gained by the industry.
Ticket prices rose and fell based on individual
instruction, competition accelerated.
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Airline Deregulations Act and Its Impact
(cont.)
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The Act had two major components:
The first was the gradual dismantling of the CAB
by 1985
 The second was the scope of antitrust legislation
that was entered into on the freedom to
competition and protection from monopolies
gained by the industry.
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Airlines experienced a period of unlimited
freedom following deregulation. .
Airline Deregulations Act and Its Impact
(cont.)
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The importance of travel agents to the
travel public was obviously increased
since travelers were depending more and
more on travel agents for deals and for
understanding the complicated rules of
airline ticket pricing.
The Rapid Growth of Travel Agencies
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Travel agencies experienced unprecedented
economic gain as airlines prospered in the wake of
deregulation.
The number of travel agencies around the country
multiplied at an alarming rate. Increases in
commissions were a result of the confusion that
airlines felt with their newfound freedom and were
readily accepted by agents.
For the time being, the travel agent industry was a
prosperous one that appeared to have limitless
opportunities.
The Rapid Growth of Travel Agencies
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Since CAB was dismantled and the validity of the
ATC conference system were questioned, travel agent
exclusivity and agency accreditation procedures were
no longer abided by
The travel agency industry experienced its own
deregulation in December 1982.
Travel Agency Industry Deregulation
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The largest change resulting from agency
deregulation was the implementation of the Airline
Reporting Corporation (ARC), which, in 1984,
replaced the ATC while maintaining most of its
functions.
The ARC allowed airlines to decide for themselves
who represented them and their ticket distribution,
giving the airlines gained enormous power in the
distribution of air travel information and ticketing
and also sowed the seeds for the strained and
hostile relationship between the airlines and the
travel agencies over the structure of commissions in
the age of e-commerce
Impact Of The Deregulations On
Travel Agents
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Both deregulations set the tone for the
industry standards and practices that were
followed up to the birth of Internet ecommerce.
Without airline deregulation, the airlines may
have had a much more difficult time jumping
on the Internet distribution channel and
freeing themselves from the influence of
travel agents.
Commission and the Travel Agents
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The commission structure of travel agents with travel
carriers and suppliers as well as travelers is such that
potential troubles for travel agents were already
planted.
Travel agent commissions are unique in that they are
subtracted from the selling price of a ticket rather than
added on the final cost for the customer.
Travel agents’ monetary compensations come solely
from the service providers, not the customers they
work with.
Commission and the Travel Agents (cont.)
Therefore, agencies are at the mercy of
those who direct commission payouts;
these people determine the financial
success of an agency.
 Airline commissions account for
approximately two-thirds to nine-tenths of
a travel agency’s total income (Foster
1990).
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The Failure of a Business Model
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Relationships between travel agents and the airlines
have been dictated largely by the airlines since it is the
airlines who control the commission structure, not the
agents.
There is strong incentive for airlines to reduce the
commissions since it is a considerable part of their
operating expenses in selling tickets.
It is not surprising that when the Internet provides an
alternative for airline ticket and information distribution,
airlines were the first ones to capitalize on it.
A commission cut seemed to be a logical step for airlines
since they were relying less on their old-time partners,
travel agents, to complete sale transactions.
8.3 Technology And Travel Agents
In the years preceding such information
technology advances, agents had to
access information through various
channels, phone calls to central locations,
using wall-sized availability boards and a
manual method called the “lazy Susan,”
 Travel agents depend on the airlines to
provide technology support
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Computer Reservation Systems
History
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The first CRS (computer reservations systems)
was officially introduced in 1953 by a partnership
between American Airlines and IBM.
This system later became known as SemiAutomated Business Research Environment,
better known as Sabre
These systems have traditionally been
organized by individual airlines to handle
reservations, ticketing, schedules, and seat
inventories
Soon, other airlines followed suit and developed
their own CRSs
Global Distribution Systems
History
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Sabre is both a CRS and a global distribution system
(GDS) of travel information and ticket reservations.
A GDS is basically a computer reservations system that
contains a vast database of inventories and travel
information of participating travel carriers and suppliers
who pay a fee to subscribe to the GDS service
It was impractical for travel agents to subscribe to
different CRSs owned by different airlines.
A system called GDS would be needed to collect all
airline information into one mass database.
These GDSs serve as centralbrepositories for all kinds of
data and information, ranging from databasesbof
reservations to information about the travelers who made
reservationsbwith them
Major GDS systems
Sabre (www.sabre. com)
 Galileo/Apollo (www.galileo.com)
 Amadeus (www.amadeus.com)
 Worldspan (www.worldspan.com)
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Table 8.1
A Brief View of Global Distribution
Systems
Company/Website
Sabre
www.sabre.com
Galileo/Apollo
www.galileo.com
Amadeus
www.amadeus.com
Worldspan
www.worldspan.co
m
Internet Gateway
for corporate &/or
travel agents
www.getthere.com
Internet Gateway
for individual
travelers
www.virtuallythere.
com
www.travelgalileo.c www.viewtrip.com
om
www.e-travel.com www.checkmytrip.c
om
www.tripmanager.c www.mytripandmor
om
e.com
Travel Agents and the Internet
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Travel agents responses to the challenge of the Internet
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blame the airlines, accusing them of breaking the traditional
partnership and practicing bad business ethics.
shrug their shoulders and shut their eyes to the changes by
saying that people will never leave travel agents since they
always need live human help.
claimed that Internet was a fad and that it would go away as
the frenzy died down.
simply give up, claiming that doomsday had come for the
travel agents.
look for ways to survive, compete, and ride the tidal wave of
e-commerce
Travel Agents and the Internet (cont.)
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Three things travel agents need to do before
they subscribe to any particular visions or
claims.
1.
ask the questions about their business:
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2.
ask questions about the use of technologies:
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3.
Why are customers leaving us?
Are we meeting the changing needs of our customers?
How can we keep and grow our customer base?
What can the Internet do for us and our customers?
What can I do to take advantage of the Internet to meet the
needs of my customers?
come up with strategies.
Table 8.2 Questions and Answers for
Travel Agents
factor (not accessible 24/7)
Illusion of cheaper fare
Glamour of shopping online
Image problem: agents and low tech
Customer Service(unhappy agent service)
Curiosity of technology
24/7 accessibility
Motivating
Information, rich, and updated
Factors for
the use of the Seeing/comparing options
Global reach
Internet
Control over decision, Dollar driven
Why travelers
Leave Travel
agents
Convenience
Travel Agents and the Internet (cont.)
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Travel agents have to realize and admit the
following facts about themselves before they can
realistically comprehend their current situations:
They have always been passive receivers.
They have always been at the mercy of
suppliers and technology.
They are not receptive to technological
innovations.
They have not really defined their roles. If they
have, however, they have incorrectly done so.
Travel Agents and the Internet (cont.)
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What is behind this rush to online travel shopping?
 First, the Web is revolutionizing the way consumers plan and
buy their travel.
 Second, the novelty of multimedia and the interactive capacity of
the Web captures the imagination of millions of computer users.
 Third, the competitiveness of the hospitality and tourism industry
requires, on the one hand, that companies better manage their
information systems with less of their financial resources and, on
the other, that they are pressured to increase the speed of
responding to customers and raise the satisfaction level of their
customers.
 Fourth, the perception of getting a deal by bypassing the
middleman, in this case, the travel agent, and buying directly
from service suppliers has generated plenty of excitement
among consumers.
 Finally, the traditional travel agents’ business model needs to
be revamped.
Strategies for the Travel Agents in the
Age of the Internet
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Vulnerability of the travel agents:
They are almost totally at the mercy of travel
suppliers for their revenue.
 They have never been active participants in
any technological advancement.
 They have never clearly defined their role in
relation to consumers.
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Strategies for the Travel Agents in the Age
of the Internet
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Attitude and business model changes:
Proactive rather than reactive
 change from the old product-oriented sales
approach to a service-oriented sales and
marketing approach.
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 The
Internet has created a new demand for better
service and service alternatives.
 The consumers are the kings of all kings, the
increasing power of consumers on freedom of
choices.
Table 8.3
Questions
and Issues
Strategies and opportunities
for the travel agents
Strategies and Opportunities
Understand 1.Use your existing customer database to understand
customers your customer’s needs
2.Ask your customers what you can do for them to keep
them as your loyal customers
3.Reassessment of your relationship with your
customers
Table 8.3
Strategies and opportunities for the
travel agents (cont.)
Convenience
1.Have your presence on the Internet.
2.And try to make a portal for your
customers
3.Choose the appropriate Internet
communication tools available
4.Provide your own travel
information and links to all
Table 8.3
Strategies and opportunities for the
travel agents (cont.)
Perception of
cheap fares
1.Travel agents need to be organized
to educate the public that online travel
service providers are not providing
cheaper fairs, they merely provide an
alternative.
2.Be pro-technology, but emphasize
travel agents’ ‘human touch’.
Table 8.3
Strategies and opportunities for the
travel agents (cont.)
Glamour of
shopping online
1.Build your own online book
capability
2.Link your homepage to online
booking websites
3.Provide valuable travel
information online
Table 8.3
Strategies and opportunities for the
travel agents (cont.)
Marketing of
services
1.Change from ‘productorientation’ to ‘marketingorientation’
2.Emphasize the human factor
3.Add value to your service
Table 8.3
Strategies and opportunities for the
travel agents (cont.)
Image
problem:
low-tech
1.Better training
2.Pro-technology
3.Vocational School
4.Geography is irrelevant on the Web.
Companies should think globally when
they go online.
Table 8.3
Strategies and opportunities for the
travel agents (cont.)
Improve customer 1.People who are not happy with
service
the customer’s service are always
looking for alternatives
2.The Internet offers excellent
tools for improving customers’
service
3.Think globally, but act locally.
The Future Marketing Orientation
Combined With Individualized Service
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Prediction of the future:
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Technology will not totally replace human service, but
it will considerably reduce dependence on it. Travel
agents are not going away, but they will feel the pinch
from now on.
The travel information distribution system will undergo
major shake-ups, and so will travel agents.
Restructuring and forming new partnerships are
inevitable. Fee-based and value-added services will
be combined. Only the fittest will survive.
Travel agents must find their niches in customer
service—areas where human service is superior to
nonhuman interaction—to find new customers and at
the same time to keep the old ones.
The Future Marketing Orientation
Combined With Individualized Service
(cont.)
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What consumers are looking for:
They are not using the Internet for cheap
tickets and inexpensive reservations. They
are looking for value and experience in their
total travel package—the travel information
search, travel planning, and the actual
purchase of travel products and services.
 Whoever can provide value and good
experience will win the minds of the
consumer.
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The Future Marketing Orientation
Combined With Individualized Service
(cont.)
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Who to blame
Airline commission cut
 The Internet
 Travel agents’ loosened accreditation
requirements in the ownership of travel
agencies.
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